Bahrain's Tax-Free Status: What You Need To Know

Bahrain is a highly attractive prospect for international investors due to its liberal economic policies, world-class infrastructure, and business-friendly laws. The country offers a unique business environment with full exemption from taxes, zero customs duties, and the possibility of 100% foreign ownership across most sectors.

Bahrain has three Free Trade Zones (FTZs) that provide a competitive edge for foreign businesses: Bahrain Logistics Zone (BLZ), Bahrain International Investment Park (BIIP), and Bahrain International Airport (BIA). These zones offer various benefits, including tax advantages, simplified regulations, streamlined customs procedures, and access to skilled workers and international markets.

While Bahrain does not have a general tax system, there are some taxes and contributions that individuals and companies must pay. For example, employers and employees contribute to social insurance, and there is a municipal tax on the rental of commercial and residential properties. Additionally, companies in the oil and gas sector are taxed on profits from exploration, production, and refining activities.

With its free zones, strategic location, and favourable business environment, Bahrain presents an ideal setting for companies looking to expand into the Middle East and North African markets.

Bahrain's Free Zones

Bahrain is known for its liberal economic policies, actively encouraging foreign investment and trade. The country offers a unique business environment with full tax exemption, zero customs duties, and the possibility of 100% foreign ownership across most sectors without the need for a local partner.

Bahrain has three Free Trade Zones (FTZs), each catering to different sectors of the global market with unique advantages in infrastructure and strategic positioning. These zones are:

• Bahrain Logistics Zone (BLZ): Located near Khalifa bin Salman Port, BLZ is ideal for re-exporting and logistics operations. It offers no annual rental costs, a 50% reduction on utility bills, and exemptions from national labour hiring requirements. Companies can access plots starting from 2,000 square meters at an average cost of US$10 per square meter annually. BLZ is particularly advantageous for logistics companies due to its 24-hour operation and proximity to significant shipping routes.
• Bahrain International Investment Park (BIIP): BIIP is significantly larger than BLZ, covering 247 hectares, making it well-suited for large manufacturing and export-led services. It offers incredibly low land rental rates at just US$1.33 per square meter, attracting substantial manufacturing operations, including food processing, medical technology, and electronics. Like BLZ, BIIP operates 24 hours a day and is strategically positioned between Bahrain International Airport and the new Shaikh Khalifa Sea Port.
• Bahrain International Airport (BIA): While not a traditional free zone, BIA offers unique advantages such as 100% foreign ownership and a bonded cargo terminal that allows for the delayed payment of duties. It specializes in cargo sales, trans-shipments, break-bulk cargo handling, and customs clearance within a 19,000 square meter terminal.

Each of these free zones offers a stable economic setting, a business-friendly environment, cutting-edge technology, and excellent business potential in prime locations. They provide foreign companies with access to Bahrain's booming trillion-dollar economy and a gateway to the international market, particularly the Middle East & North African (MENA) markets.

Tax exemptions

Bahrain is known for its liberal economic policies, actively encouraging foreign investment and trade. The country offers a unique business environment with full tax exemption, zero customs duties, and the possibility of 100% foreign ownership across most sectors without the need for a local partner.

Free Zones in Bahrain

Bahrain has three Free Trade Zones (FTZs), each tailored to cater to different sectors of the global market with unique infrastructural advantages and strategic positioning. These zones are:

• Bahrain Logistics Zone (BLZ): Located near Khalifa bin Salman Port, BLZ is ideal for re-exporting and logistics operations. It offers no annual rental costs, a 50% reduction on utility bills, and exemptions from national labour hiring requirements. Companies in BLZ can access plots starting from 2,000 square meters, with an average cost of US$10 per square meter annually.
• Bahrain International Investment Park (BIIP): BIIP is significantly larger than BLZ, covering 247 hectares, making it well-suited for large manufacturing and export-led services. It offers low land rental rates at just US$1.33 per square meter. Like BLZ, BIIP operates 24 hours a day and is positioned advantageously between Bahrain International Airport and the new Shaikh Khalifa Sea Port.
• Bahrain International Airport (BIA): While not a traditional free zone, BIA offers unique advantages such as 100% foreign ownership and the use of a bonded cargo terminal that allows for the delayed payment of duties. It specializes in cargo sales, trans-shipments, break-bulk cargo handling, and customs clearance within a 19,000 square meter terminal.

Taxation in Bahrain

The Kingdom of Bahrain does not operate a general tax system. There is no personal income tax, sales tax, capital gains tax, or property tax. However, there is a Value-Added Tax (VAT) which was introduced in 2019 at a rate of 5% and increased to 10% in 2022. Additionally, social security contributions are required, with employers paying 12% of payroll and employees paying 5%. There is also a municipal tax of 10% levied on the rental of commercial and residential property to foreigners.

Benefits of Free Zones in Bahrain

Setting up a business in Bahrain's Free Trade Zones offers several advantages, including:

• Tax exemptions: Businesses in the Free Zones are exempt from taxes, providing a significant financial benefit.
• Easy company formation: The Free Zones offer a simplified registration process, making it easier for companies to establish their presence in Bahrain.
• Foreign ownership: Bahrain allows 100% foreign ownership in most industries, providing greater flexibility for international companies.
• Infrastructure and connectivity: Bahrain's Free Zones offer world-class infrastructure, excellent multi-modal connectivity through sea, land, and air, and seamless access to international markets.
• Low operating costs: With no annual rental costs and reduced utility bills, businesses in the Free Zones benefit from low operating expenses.

Business setup process

Bahrain is known for its liberal economic policies that actively encourage foreign investment and trade. The country offers a unique business environment with full exemption from taxes, zero customs duties, and the possibility of 100% foreign ownership across most sectors without the need for a local partner. Here is a step-by-step guide on how to set up a business in Bahrain:

Pre-registration Preparation:

• Choose a unique and appealing name for your company, both in English and Arabic.
• Identify the shareholders, directors, and beneficial owners who will be the cornerstone of your business.
• Decide on a corporate structure that suits your business needs, such as a Limited Liability Company (WLL) or a branch of a foreign company.

Commercial Registration:

• Submit the required information and documents to the Ministry of Industry, Commerce, and Tourism (MOICT) through the Sijilat Portal.
• Once approved, you will receive a Commercial Registration Certificate.

Open a Corporate Bank Account:

• Deposit the minimum capital amount required for your chosen business structure into a corporate bank account.
• The bank will provide a capital deposit certificate, which is crucial for finalizing the company registration process.

Lease an Office Space:

• Secure a registered office address in Bahrain, which can be a physical office, a shared workspace, or a virtual office address.
• Consider factors such as cost, scalability, and professional image when choosing the type of office address.

Hire Bahraini Local Employees:

Bahrain has a highly educated and competent workforce that can contribute to your company's success.

Secure Local Licenses and Final Company Registration:

• Obtain municipal approvals, approvals from regulators and licensing authorities, and pay the necessary licensing fees and permits.
• Prepare and notarize the required documents, including the company registration application form, capital deposit certificate, passports and visas for shareholders, power of attorney, company business plan, commercial office address details, and certificates of education and training of the applicant.
• Register your company with the MOICT and obtain your Certificate of Incorporation and other administrative corporate documents.

Tax Registration:

Register your company with the Bahraini tax authorities, even if your company will benefit from tax exemptions.

Work Visas:

Apply for work visas if you intend to hire foreign employees, including yourself. Provide proof of employment and fulfil other immigration criteria.

Directors and Shareholders:

Ensure you have at least two directors and a minimum of one shareholder to form a free zone company in Bahrain.

By following these steps, you can take advantage of Bahrain's favourable business environment and establish your company successfully in this thriving market.

Foreign ownership

Bahrain is known for its liberal economic policies, actively encouraging foreign investment and trade. The country permits 100% foreign ownership across most sectors without the need for a local partner. This applies to both new industrial entities and the establishment of representative offices or branches of foreign companies.

There are some exceptions to this rule, however. While expatriates may own land in designated areas, certain areas may be closed to Bahraini investors and expatriates. The Ministry of Industry and Commerce (MoIC) maintains a list of business activities that are restricted to Bahraini ownership, including press and publications, Islamic pilgrimage, clearance offices, and workforce agencies.

Bahrain has three main Free Trade Zones (FTZ) that offer additional benefits to foreign companies: the Bahrain Logistics Zone (BLZ), the Bahrain International Investment Park (BIIP), and the Bahrain International Airport (BIA). These zones offer advantages such as no annual rental costs, a 50% reduction on utility bills, exemptions from national labour hiring requirements, and zero customs duties.

The Bahrain Logistics Zone is ideal for re-exporting and logistics operations due to its proximity to Khalifa bin Salman Port, the largest port in Bahrain. It offers plots starting from 2,000 square meters at an average cost of US$10 per square meter annually.

The Bahrain International Investment Park is well-suited for large manufacturing and export-led services, with extremely low land rental rates at just US$1.33 per square meter. It is located between Bahrain International Airport and the new Shaikh Khalifa Sea Port, offering seamless access to facilities.

While Bahrain International Airport is not a traditional free zone, it does offer unique advantages such as 100% foreign ownership and a bonded cargo terminal that allows for the delayed payment of duties. It is a 19,000 square meter terminal specialising in cargo sales, trans-shipments, break-bulk cargo handling, and customs clearance.

In addition to these three main zones, there are other special free zones in Bahrain, such as the Sheikh Khalifa bin Salman Port and the Bahrain Investment Wharf, which offer their own unique benefits to foreign companies.

Import and export regulations

Bahrain is known for its liberal economic policies, actively encouraging foreign investment and trade. The country offers a unique business environment with full tax exemption, zero customs duties, and the possibility of 100% foreign ownership across most sectors without the need for a local partner.

Import Requirements and Documentation

Importers or their local agents must complete a customs bill of entry before importing goods into Bahrain. It is highly recommended that importers use a registered, licensed clearing agent to ensure import procedures are completed efficiently. The importer is required to submit a customs declaration form, along with the following documents:

• Shipping agent delivery order from the shipping agent line to the importer/consignee (with valid commercial registration)
• Three copies of the original invoices from the exporter addressed to the importer
• Two copies of the packing list with detailed weights, packaging, and goods classification for each item within the shipment
• Original certificate of origin from the relevant chamber of commerce of the country of origin of goods
• Copy of the insurance policy
• Original bill of lading
• Import permit/approval from the relevant authority for restricted goods
• Bank advice/guarantee (if applicable)
• A statistical declaration if the final destination of the goods is within GCC countries

After submitting the customs declaration form, the following procedures are required for customs clearance:

• Pay the duty and fees at the cashier desk in the customs point where the goods will be cleared
• Submit all relevant documentation to the customs clearing officer
• Pay the relevant cargo handling fees and make an appointment for the movement of the cargo
• The port operator will move the container to the relevant inspection point
• Customs will risk-assess the goods, and an inspection may be carried out
• Goods will be cleared and allowed to leave the customs point

Prohibited and Restricted Imports

Bahrain has a list of prohibited and restricted goods for import and export, which are subject to local laws, international agreements, and treaties.

Prohibited goods include:

• Used tires
• Wireless communication devices
• Ivory and articles of ivory
• Poultry and fortified red meats
• Respiratory and gas masks
• Alcoholic beverages and tobacco products (non-GCC imports)
• Narcotics, asbestos, and weapons

Restricted goods that require a No Objection Certificate (NOC), valid permit, or approval document from the relevant regulatory authority include:

• Live wild animals, including horses (excluding circus or performance animals)
• Animal and vegetable fertilizers
• Insecticides and fungicides
• Meat and meat products
• Fish and seafood products
• Fruit and vegetables
• Radioactive chemicals and active isotopes
• Unadulterated ethyl alcohol, iso-propanol
• Handcuffs made from iron/steel
• Arms, ammunition, explosives, and military weapons
• Magazines and publications
• Optical and magnetic audio-visual media
• Items infringing on intellectual property rights
• Telecommunications, radio, and television equipment

Customs Duties

The Basic Customs Duty is a tariff imposed on goods transported across international borders. Bahrain applies a Common External Tariff (CET) of 5% on nearly all imported goods, except for goods produced in GCC countries and countries with specific trade agreements, such as the United States. Certain goods, like paper and aluminium, are charged a 20% duty rate upon import.

Additionally, non-GCC imported alcoholic beverages and tobacco products are assessed higher customs duties of 125% and 100%, respectively.

Frequently asked questions